THE RELATIONSHIP OF RISK ASSESSMENTS AND INFORMATION TECHNOLOGY TO DETECTED MISSTATEMENTS Lizabeth A. Austen Assistant Professor University of Arkansas Aasmund Eilifsen Associate Professor Institute of Accounting‚ Auditing and Law Norwegian School of Economics and Business Administration William F. Messier‚ Jr. Deloitte & Touche Professor Georgia State University Professor II Institute of Accounting‚ Auditing and Law Norwegian School of Economics and Business Administration Preliminary Draft:
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Inherent Risk i) expanded into a national manufacturer of high technology sustainable energy products brings with it a range of uncertainties‚ including compliance requirements and logistical problems increased potential for misstatement due to the judgements required requiring more judgement such as research and development (valuation)‚ intangible assets (valuation)‚ inventory (valuation) and property plant and equipment (valuation). ii) assets include “intellectual property rights”
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Inherent Risk * i/3 of audit risk model.. lesast amount of evidence awailable use professional judgement * not static‚ assessed at the planning stage mostly and audit too Major factors that an auditor should consider when assessing inherent risk 1) Nature of clients business – the more susceptible the client the greater the risk ( if the client is in a business with heavy changes in technology 2) Nature of data processing – the more poorly the IT system is made
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Inherent risk Computerizing risk Non-routine transactions (Beasley 2010‚ p268) ‘Transactions that are unusual for the client are more likely than routine transactions to be incorrectly recorded‚ because of the client often lacks experience in recording them.’ Why it is risk: Santos use a series of computerizing or IT technology to support their business for increase market competition. IT technology has been used for trade ordering systems between customs and Santos. Customers can order
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Inherent Risk Inherent risk is the susceptibility of an account balance or class of transactions to misstatement that could be material either individually or when aggregated with misstatement in other balances or classes assuming that there were no related internal controls. This risk mainly arises at the level of management and the risk factor generally being high. Factors Affecting Inherent Risk: At the level of financial statement Integrity of management; Management’s experience and
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One inherent risk factor that would impact my audit procedures of Enron were the large number of highly complex accounting entries. For example energy traders were required to book all the projected profits from a supply contract in the quarter in which the deal is made. Such accounting procedures are inherently risky as they make assumptions about price forecasts which can drastically affect earnings. Another inherent risk factor is the frequency of related party transactions. The special purpose
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Additional useful information on types of risk Market or price risk relates to the uncertainty in markets and prices for both inputs (purchased for the production process)‚ and outputs (products and services for sale by the firm). Market/price risk has always been a major problem in most businesses and results from the economic forces of supply and demand. Outcome of these forces are fluctuations in the price for a commodity and/or inputs in the production of that commodity. These fluctuations
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Types of Risk Stand-Alone Risk This risk assumes the project a company intends to pursue is a single asset that is separate from the company’s other assets. It is measured by the variability of the single project alone. Stand-alone risk does not take into account how the risk of a single asset will affect the overall corporate risk. Corporate Risk This risk assumes the project a company intends to pursue is not a single asset but incorporated with a company’s other assets. As such‚ the
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Risks must not be viewed and assessed in isolation‚ not only because a single transaction might have a number of risks but also one type of risk can trigger other risks. Since interaction of various risks could result in diminution or increase in risk‚ the risk management process should recognize and reflect risk interactions in all business activities as appropriate. While assessing and managing risk the management should have an overall view of risks the institution is exposed to. This requires
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Project risk management plan Content Executive Summary 2 1. Project introduction 2 2. AS/NZS/ISO 31000:2009 - Risk Management Process 3 2.1. Introduction 3 2.2. Establish context 4 2.3. Identify risks 4 2.4. Analyse risks 5 2.5. Evaluate risks 6 2.6. Treat risks 6 2.7. Monitor and review 6 2.8. Communicate and consult 6 3. Project risk assessment 6 3.1. Inherent risk assessment 6 3.2. Risk distribution 7 4. Risk analysis 8 4.1. Risk Classification
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